Global mergers and acquisitions are entering a more selective phase after an unusually powerful first half of the year, exposing how sensitive corporate dealmaking remains to the cost of money. Worldwide M&A activity fell to $993 billion in the third quarter, a 41% decline from the previous quarter and the first time quarterly activity had dropped below $1 trillion since the second quarter of 2025. Yet the broader picture is not one of a collapsed market. Deal value for the year remained exceptionally high, suggesting that companies are not abandoning acquisitions but are becoming more careful about which transactions justify increasingly expensive capital.
The shift matters because the recent M&A boom was supported by several forces operating simultaneously. Companies wanted scale, access to technology and new markets, while investors were willing to finance large strategic moves. Artificial intelligence added another powerful reason to acquire assets quickly, particularly businesses with valuable technology, data or computing infrastructure. But rising bond yields have changed the mathematics. When financing becomes more expensive, the price a buyer is willing to pay becomes harder to justify unless the target can generate sufficiently strong future earnings or provide a strategic advantage that cannot easily be built internally.
The Cost Of Capital Is Changing Deal Logic
The third-quarter slowdown illustrates why M&A cycles cannot be judged only by the headline value of transactions. The number of deals has been falling even while total deal value remains high, indicating that activity is becoming increasingly concentrated among large companies capable of funding major acquisitions. That concentration is significant because smaller transactions are often more dependent on financing conditions, while large corporations can use cash, shares or stronger balance sheets to structure deals without relying entirely on expensive debt.
Higher energy prices are adding another layer of uncertainty. Energy inflation can keep overall inflation elevated, which in turn makes investors less confident that interest rates will fall quickly. For corporate boards, that creates a difficult calculation. An acquisition financed at a high interest rate needs stronger earnings or greater cost savings to produce an acceptable return. If those benefits depend on economic growth remaining strong, the transaction becomes even harder to defend when the outlook is uncertain.
That does not mean strategic acquisitions have lost their appeal. Companies continue to seek technologies they cannot develop quickly themselves, particularly in artificial intelligence, cybersecurity, data infrastructure and specialised healthcare. The difference is that boards now have greater reason to ask whether buying a business is actually faster and cheaper than building the required capability internally. That question can eliminate speculative transactions while leaving strategically important ones intact.
Artificial Intelligence Is Keeping Big Deals Alive
Technology remains one of the strongest forces preventing the M&A market from entering a broad downturn. Strategic investments in technology companies have accounted for a substantial share of global deal activity, while large artificial intelligence companies have attracted enormous amounts of capital. The importance of artificial intelligence is therefore working in two directions. It is supporting demand for acquisitions, but it is also making investors more sensitive to valuations.
The market is increasingly separating businesses that possess commercially valuable artificial intelligence capabilities from those whose valuations depend mainly on expectations about future technology. That distinction can have a major impact on dealmaking. A company with proven customers, infrastructure or proprietary technology can still command significant interest. A business whose value depends on assumptions about future adoption may face much greater scrutiny when financing costs rise.
This is why the third-quarter slowdown may represent a change in the quality of dealmaking rather than a simple retreat. Companies can still pursue acquisitions, but the threshold for approval is becoming higher. Boards have to demonstrate that a transaction strengthens the business rather than merely making it larger. The environment therefore favours deals that produce measurable strategic benefits, including access to technology, geographic expansion or cost savings.
Asia Is Showing A Different Pattern
The regional breakdown also complicates the idea that global M&A has entered a uniform slowdown. Asia-Pacific deal activity increased during the third quarter, even as activity in the United States and Europe weakened. That divergence reflects differences in corporate strategy, market valuations and the availability of financing, but it also shows that global dealmaking is increasingly fragmented.
Cross-border transactions remain important because currency movements can change the attractiveness of foreign targets. A strong currency can make overseas acquisitions relatively cheaper for buyers, while weaker currencies can make domestic companies attractive to foreign investors. This creates opportunities even when the overall economic environment is less supportive.
Private equity activity also remains historically strong on a year-to-date basis. That suggests capital has not disappeared from the market. Instead, investors appear to be becoming more selective about where it is deployed. Companies with resilient earnings and clear strategic relevance can still attract substantial funding, while businesses dependent on cheap leverage face a tougher environment.
The result is a more disciplined M&A market. The extraordinary pace seen earlier in the year may not be sustainable while borrowing costs remain elevated, but the underlying strategic demand for consolidation has not disappeared. The next phase of global dealmaking is therefore likely to be defined less by the sheer number of transactions and more by the quality of the assets companies are willing to buy.
(Source:www.euronext.com)
The shift matters because the recent M&A boom was supported by several forces operating simultaneously. Companies wanted scale, access to technology and new markets, while investors were willing to finance large strategic moves. Artificial intelligence added another powerful reason to acquire assets quickly, particularly businesses with valuable technology, data or computing infrastructure. But rising bond yields have changed the mathematics. When financing becomes more expensive, the price a buyer is willing to pay becomes harder to justify unless the target can generate sufficiently strong future earnings or provide a strategic advantage that cannot easily be built internally.
The Cost Of Capital Is Changing Deal Logic
The third-quarter slowdown illustrates why M&A cycles cannot be judged only by the headline value of transactions. The number of deals has been falling even while total deal value remains high, indicating that activity is becoming increasingly concentrated among large companies capable of funding major acquisitions. That concentration is significant because smaller transactions are often more dependent on financing conditions, while large corporations can use cash, shares or stronger balance sheets to structure deals without relying entirely on expensive debt.
Higher energy prices are adding another layer of uncertainty. Energy inflation can keep overall inflation elevated, which in turn makes investors less confident that interest rates will fall quickly. For corporate boards, that creates a difficult calculation. An acquisition financed at a high interest rate needs stronger earnings or greater cost savings to produce an acceptable return. If those benefits depend on economic growth remaining strong, the transaction becomes even harder to defend when the outlook is uncertain.
That does not mean strategic acquisitions have lost their appeal. Companies continue to seek technologies they cannot develop quickly themselves, particularly in artificial intelligence, cybersecurity, data infrastructure and specialised healthcare. The difference is that boards now have greater reason to ask whether buying a business is actually faster and cheaper than building the required capability internally. That question can eliminate speculative transactions while leaving strategically important ones intact.
Artificial Intelligence Is Keeping Big Deals Alive
Technology remains one of the strongest forces preventing the M&A market from entering a broad downturn. Strategic investments in technology companies have accounted for a substantial share of global deal activity, while large artificial intelligence companies have attracted enormous amounts of capital. The importance of artificial intelligence is therefore working in two directions. It is supporting demand for acquisitions, but it is also making investors more sensitive to valuations.
The market is increasingly separating businesses that possess commercially valuable artificial intelligence capabilities from those whose valuations depend mainly on expectations about future technology. That distinction can have a major impact on dealmaking. A company with proven customers, infrastructure or proprietary technology can still command significant interest. A business whose value depends on assumptions about future adoption may face much greater scrutiny when financing costs rise.
This is why the third-quarter slowdown may represent a change in the quality of dealmaking rather than a simple retreat. Companies can still pursue acquisitions, but the threshold for approval is becoming higher. Boards have to demonstrate that a transaction strengthens the business rather than merely making it larger. The environment therefore favours deals that produce measurable strategic benefits, including access to technology, geographic expansion or cost savings.
Asia Is Showing A Different Pattern
The regional breakdown also complicates the idea that global M&A has entered a uniform slowdown. Asia-Pacific deal activity increased during the third quarter, even as activity in the United States and Europe weakened. That divergence reflects differences in corporate strategy, market valuations and the availability of financing, but it also shows that global dealmaking is increasingly fragmented.
Cross-border transactions remain important because currency movements can change the attractiveness of foreign targets. A strong currency can make overseas acquisitions relatively cheaper for buyers, while weaker currencies can make domestic companies attractive to foreign investors. This creates opportunities even when the overall economic environment is less supportive.
Private equity activity also remains historically strong on a year-to-date basis. That suggests capital has not disappeared from the market. Instead, investors appear to be becoming more selective about where it is deployed. Companies with resilient earnings and clear strategic relevance can still attract substantial funding, while businesses dependent on cheap leverage face a tougher environment.
The result is a more disciplined M&A market. The extraordinary pace seen earlier in the year may not be sustainable while borrowing costs remain elevated, but the underlying strategic demand for consolidation has not disappeared. The next phase of global dealmaking is therefore likely to be defined less by the sheer number of transactions and more by the quality of the assets companies are willing to buy.
(Source:www.euronext.com)
